USDEC: World market absorbs Oceania flush

The U.S. Dairy Export Council’s November Global Dairy Market Outlook report suggests the peak of the Oceania flush is past and the markets have absorbed this increased production without a knock on pricing. 

At mid-November, the global dairy markets were generally steady, and traders weren’t tipping their hands on where things go from here, said USDEC’s Alan Levitt, Marc Beck and Brad Gehrke. Trading activity has been light, though it has picked up in recent weeks. Since mid-year, export prices are up about 14% out of Oceania, and up nearly 30% out of Europe and the United States.

The good news is that while demand has not been outstanding, it has been good. And, USDEC indicated, supplies should start to tighten. Oceania production is running ahead of last year’s record pace and plants are running near capacity, but this volume is mostly committed. The front end of the flush was good, but that doesn’t guarantee the back end will be as strong. It’s clear that growth won’t be as robust as last year (when output was up by double-digits).

Meanwhile, production has fallen below a year ago in Europe, the United States and Argentina. As a result, USDEC views the market as undersupplied and anticipate stronger prices in the short/medium term into 2013. End-user inventories are still adequate, but buyers will need to make dispositions to cover remaining needs for Q1 and Q2. Despite long-term investment to boost their local industries, imports remain cheaper than domestic production in China, Russia and other importing countries, which bodes well for sustained buying for the foreseeable future.

The report comes with a warning, however: Global economic and political uncertainty is weighing on buyers’ mentality, as Europe remains in recession, the U.S. Congress negotiates to avoid its “fiscal cliff” of tax increases and spending cuts, and an escalation of tensions in the Middle East threatens to send oil prices higher again.

To see  the full report, visit www.usdec.org/files/GDMO/USDEC%2DGDMO%2D201211%2DAbridged.pdf